"If A Party To A Proceeding Invites An Order By Making An Offer, He Is Obliged To Honour The Commitment Made In The Form Of The Offer"- Matter Referred To CJI After Split Verdict Of Division Bench

Matter Before The Court

The Petitioner, SEPCO Electric Power Construction Corporation and the Respondent, Power Mech Projections Ltd., had worked together on various coal-based power projects in India. However, some disputes had arisen between the two entities which were referred to arbitration. Following the completion of the arbitration proceedings, an award of approximately Rs. 1,42,00,00,000 was passed in favour of the Respondent.

The SLP was filed before the Supreme Court after a Division Bench of the High Court of Delhi dismissed an appeal filed by the appellant under Section 37 of the Arbitration and Conciliation Act, 1996, read with Section 31(1A) of the Commercial Courts Act, 2015. The Division Bench had been presented with an appeal against an order passed by the Commercial Division of the Delhi High Court, which had been in a petition filed under Section 9 of the Arbitration and Conciliation Act, 1996. By the impugned order, the appellant was directed to substitute an irrevocable bank guarantee, which had been issued by the Mumbai Branch of Industrial and Commercial Bank of China Ltd. (ICBC), for an amount of Rs. 30 crores, with a bank guarantee of a "Scheduled Indian Bank", for the same amount.

The question presented before the Division Bench of the Supreme Court was whether the Delhi High Court could legally refuse to accept a bank guarantee given by the ICBC, which is a Scheduled Bank included under Schedule 2 of the Reserve Bank of India Act, 1934? Moreover, should the Appellant be asked to furnish a new bank guarantee from a Scheduled Indian Bank for the same amount?

Judgement Given By Justice Indira Banerjee:

While referring to the order of the Commercial Division of the Delhi High Court on 9^th April, 2019, Justice Banerjee pointed out that in the order dated 12.02.2019, Mr. Sethi, the Senior Counsel of SEPCO Corporation had voluntarily stated that the petitioners would "furnish a bank guarantee in the sum of Rs. 30 crore from a scheduled Indian bank". The confusion arose when Mr. Sethi, as recorded in the same order, stated that "the bank guarantee in the sum of Rs.30 crores will be that of a scheduled bank located in India."

ICBC is, as mentioned before, a scheduled bank as per the Reserve Bank of India Act, 1934. However, it is not a scheduled Indian bank. It is merely a scheduled bank located in India as it has a branch in Mumbai.

Justice Banerjee focussed on the differentiation between a scheduled Indian bank and a scheduled Bank located in India. She stated that the Second Schedule of the RBI Act, 1934 only specified the term "scheduled bank" and it did not distinguish between a scheduled Indian bank and a scheduled foreign bank. "The RBI Act only defines 'Scheduled Banks' which includes Scheduled Foreign Banks operating in India. The RBI Act or the Second Schedule thereto does not segregate Scheduled Indian Banks. There is no definition of Scheduled Indian Bank in the RBI Act. The regulatory provisions of the RBI Act apply equally to all scheduled banks," observed Justice Banerjee.

Justice Banerjee also found that no empirical evidence could be presented by the respondents which would show any plausible reason for preferring Scheduled Indian Banks to Scheduled Foreign Banks in India like ICBC. Furthermore, it was stated that disapproving a bank guarantee furnished by a foreign bank would raise doubts regarding the credibility of such foreign banks.

Justice Banerjee allowed the appeal, holding that since there is no evidence that would cast doubts on the credibility of ICBC, the bank guarantee furnished by them would be sufficient a separate bank guarantee from a 'scheduled Indian bank' would not be necessary. Justice Banerjee noted that the appellant had incurred substantial expense in submitting the bank guarantee and treated that to be a factor favouring granting of relief to the appellant.

Judgement Given By Justice V. Ramasubramanian:

Unlike Justice Banerjee, Justice Ramasubramanian was of the opinion that the appeal should not be allowed. First and foremost, the Court recognised that the genesis of the dispute arose from the impugned order dated 12.02.2019, in which Mr. Sethi had caused confusion by using 'scheduled Indian bank' and 'scheduled bank located in India' interchangeably. It was also pointed out that the same learned Judge, who passed the impugned order, had realised the source of the confusion, and had passed an interim order stating that the bank guarantee of ICBC be substituted with a bank guarantee of a scheduled Indian bank.

Justice Ramasubramanian stated that the confusion had been promptly corrected and that once the same learned Judge had clarified his intentions and passed an interim order, the Appellate Court could not upset the discretion that had been exercised by him. Justice Ramasubramanian also stated that the order of 12.02.2019 was not an adjudicatory order and had been made on the offer which was put forth by Mr. Sethi on behalf of the petitioners. Since the offer had come voluntarily from the side of the petitioners, Justice Ramasubramanian stated, "If a party to a proceeding invites an order by making an offer, he is obliged to honour the commitment made in the form of the offer."

While dismissing the case, Justice Ramasubramanian noted that the appellant, after making a clear offer to furnish a bank guarantee of a scheduled Indian Bank, had chosen to take advantage of a mistake that had been made in the order dated 12.02.2019. Hence, the Latin maxim actus curiae neminemgravabit, meaning the act of the Court shall prejudice no one, does not come to the appellant's rescue. Furthermore, Justice Ramasubramanian clarified that the SLP will not be entertained under Article 136 for the following reasons:

    1. The same Judge who had initially passed the order of 12.02.2019 had clarified his intentions with another order dated 09.04.2019

    2.The same Judge dismissed a petition filed before him on 16.05.2019 to recall the order that was passed on 09.04.2019

    3.The Commercial Bench of the Delhi High Court dismissed the appeal which was arising out of the order dated 16.05.2019

    4. Lastly, the Commercial Bench reiterated its orders by dismissing a review petition that was presented before it.

Keeping these points in mind, Justice Ramasubramanian felt that the appellant is seeking to upset these order of events by filing an SLP under Article 136, when there exists no substantial question of law of great importance. It was clarified that the question of difference between 'scheduled Indian bank' and 'scheduled bank located in India' does not arise as the dispute revolves around "what was offered in Court by one of the parties, what was accepted in Court, and what was recorded in the Order and clarified later." Justice Subramanian further stated, "If without any offer from the petitioner, an adjudication had been made by the Court directing the petitioner to furnish bank guarantee of a particular type of bank and a dispute had been raised thereafter, it is only then that a question of law as to the status of such a bank with reference to the statutory provisions, would have arisen."

Accordingly, Justice Subramanian dismissed the petition.

Since the Division Bench had differing opinions, the case has been referred to Chief Justice N.V. Ramana.